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Right-sizing the leadership team

LiveMint 03-06-2014P.R. Sanjai

What’s the optimum size of a top management team? The debate around the number of ministers in Prime Minister Narendra Modi’s cabinet highlights the need to have the right size. While some corporate leaders believe in large teams to democratize the decision-making process, others say small is more efficient. In this week’s leadership debate, three experts give their views on how big a leadership team should be in a corporate set-up.

The type and size of a leadership team needs to vary depending on the nature of the business, and its structure and role.

Typically, in large industrial conglomerates such as General Electric Co.(GE), the role of the leadership team is to “set up the game” and let the individual profit and loss owners drive the business. The leadership will define strategy, support investments and establish governance norms.

Large vertically integrated industrial firms in automotive or semiconductor sectors have leadership teams that are more functional. The leadership team not only defines and approves strategy and investments, but is much closer to day-to-day operations.

Leadership teams in conglomerates tend to be smaller. Consider GE and Ford Motor Co., for example. Both had nearly identical 2013 revenues. However, GE has a corporate leadership team of 21 and Ford has 42 corporate officers. Another class of corporations are those that are born out of entrepreneurship. They tend to be highly centralized and often founder-centric. Here, leadership teams tend to be small. Apple Inc., which was co-founded by Steve Jobs, has a leadership team of just 10 executives.

One can draw a parallel between companies and governments. India has a federal structure where the Centre sets policies and takes funding decisions. Execution happens in the states, much like a conglomerate.

“Prime Minister Narendra Modi’s cabinet is structured like that of managing a conglomerate. He has defined a smaller leadership team that seems strongly aligned with its primary role of policy formation, governance and investment decision-making,” says Palle. Eventually, the basic principle is to have a strong team where meritocracy and intellectual integrity prevail, he adds.

Raveendra Chittoor, assistant professor for strategy, ISB

The decision to have a compact cabinet is a welcome and prudent decision by Narendra Modi. Even in the corporate arena, it is good to have smaller teams and fewer committees.

Having a small team not only allows for faster decision-making and quicker implementation, but also facilitates accountability. Too many people in a group can cause confusion and duplication of responsibilities, leading to lack of accountability.

If the responsibilities or portfolios are distributed within a small group, the members are likely to feel more important and motivated as well.

At the same time, it is also necessary to keep other employees driven, especially those who have more experience. The core, or the A-team, may be small with only few employees holding key posts, but it is important for a leader to create space for other employees as well. The employees should be made to feel important and powerful by way of speech and delegation of other important tasks.

Also, a leader needs to develop a culture where employees feel empowered even without holding key designations. For instance, Amit Shahplayed a key role in Modi’s victory, but has not been given a cabinet seat. Shah, however, remains important for Modi and will continue to strengthen the Bharatiya Janata Party.

Richard Rekhy, chief executive officer, KPMG

There is no one size that fits all when it comes to leadership and governance. A lot depends on the need of the hour. It depends on the growth trajectory of an organization, the economic circumstances with due respect to the culture that must blend with the people. In general, I would be in favour of smaller leadership teams in the interest of effective and timely decision-making. With larger teams, getting consensus and matching calendars can become challenging.

Smaller teams, however, do not necessarily mean concentration of power in the hands of a few. That would make for an autocratic structure. Decision-making on certain key and strategic aspects should always be in the hands a core and small team. However, if this team has done its job properly to create the right structure, then people across the organization will have sufficient power and decision-making authority to feel challenged and fulfilled in their roles.

A combination of core leadership combined with a network of empowered people is what works best. Empowerment motivates people to give their best and, at the same time, there’s an aspiration to reach the core circle. This can only be achieved if the core leadership has its ear to the ground, chooses the leaders and there’s a culture of trust in the organization.